This country-specific Q&A provides an overview to insurance and reinsurance laws and regulations that may occur in Chile.
This Q&A is part of the global guide to Insurance & Reinsurance (3rd edition). For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/insurance-and-reinsurance-3rd-edition
How is the writing of insurance contracts regulated in your jurisdiction?
The regulation of the insurance business in Chile has a legal statute that is structured as follows:
- the rules on "contract" which are located predominantly in articles 512 et seq. of the Commercial Code , in addition to some rules of the Law on the Protection of Consumer Rights in cases of insurance contracts concluded with consumers;
- the legal norms that regulate the activity or operation of insurance companies, contained preferably in Decree with Force of Law number 251 (hereinafter DFL 251). In the case of insurance companies, DFL 251 also contemplates the minimum capital regime and technical reserves, rules on corporate governance, liquidation, among others;
- the norms that refer to the supervision of insurance activity, contained in two normative bodies: on the one hand, Law 21,000 that creates from 2017 a new institutionality is supervised in Chile -opted by an integrated supervision system or Allfinanz- in charge of the Commission for the Financial Market (hereinafter CMF) and, on the other hand, the norms of DFL 251 that regulate the activity of the subjects that intervene in the insurance industry (insurers, insurance brokers and adjusters).
Are types of insurers regulated differently (i.e. life companies, reinsurers?)
Articles 4, 8 and 11 of DFL 251 divide the Chilean insurance industry into two types of insurance companies: the “General Insurance Companies”, which has as its sole or exclusive business the contracting of damage insurance (non-life) and the “Life Insurance Companies”, the sole purpose of which is to take out personal insurance (life, personal accident and health). Exceptionally, and by express provision of Article 11 of DFL 251, "General" insurance companies may market health and personal accident insurance (this exception is based on the patromonial and indemnifying content of this type of insurance). In addition, and within the category of General Insurance Companies, Chilean law provides the “Guarantee and Credit Insurance Companies (or General Special)” which may exclusively market insurance covering credit, guarantee and fidelity risks. On the other hand, exceptionally, "General Insurance Companies" may market insurance contracts on guarantee and fidelity risks.
Insurance contracts entered into in Chile may be reinsured with:
- national public limited liability companies the sole object of which is reinsurance;
- national insurance undertakings, which may reinsure only risks of the group in which they are authorised to operate; and
- Foreign reinsurance entities, which are classified by internationally recognised risk rating agencies, in the opinion of the Financial Market Commission, in at least BBB risk category or its equivalent (a detail in Article 16 of DFL 251).
Are insurance brokers and other types of market intermediary subject to regulation?
Insurance brokers or intermediaries in Chile are regulated by articles 57 and following of DFL 251 and Supreme Decree 1055 (DS 1055) which contains the "Regulation of Auxiliaries of Insurance Commerce". In general terms, articles 57 and following of DFL 251 establish the conditions of access that brokers must comply with and the liability regime. For its part, DS 1055 contains specific rules on the information and advice obligations that intermediaries must comply with in the marketing of insurance, in addition to other obligations such as that of delivering the policies of the insurances they have intermediated, the collection of premiums and their commissions.
Once the insurance broker meets the conditions for access to the activity (a detail in Article 58 of DFL 251), they must be entered in a special register which is maintained by the CMF. Exceptionally, and in the case of insurance intermediation for international maritime transport, international commercial aviation and goods in international transit, the intermediary may be foreign people or entities not registered in the national registry, provided that they are nationals of countries that maintain in force an international treaty with Chile on the matter (article 58bis of DFL 251).
Reinsurance brokers, on the other hand, must be included in a special register kept for this purpose by the CMF.
Is authorisation or a licence required and if so how long does it take on average to obtain such permission?
The exercise of the business of insurers, insurance brokers and adjusters requires, in addition to complying with the conditions of access, a special authorisation for the case of insurers and an appointment for brokers and adjusters. In terms of deadlines, the new institutional supervision in Chile by the Commission for the Financial Market, which has reinforced certain supervisory objectives, has extended the deadlines, which range from 4 months to 6 months.
Are there restrictions or controls over who owns or controls insurers (including restrictions on foreign ownership)?
The first restriction is set forth in Article 4 of DFL 251, which establishes that "The trade of insuring risks based on premiums may only be carried out in Chile by national insurance and reinsurance corporations, whose exclusive object is the development of said business and the activities that are related or complementary to it, authorised by the Commission for the Financial Market by means of a general rule”. On the other hand, Articles 8 of DFL 251 and Article 126 of Law 18.046 on Special Corporations (including insurance companies) require an existence permit as a special and essential requirement for their incorporation.
As an exception, insurance entities incorporated abroad -without registration and authorisation obtained in Chile- may commercialise in Chile international maritime transport insurance, international commercial aviation, goods in international transit and satellites, and the cargo they transport.
The second restriction of insurance companies is determined by their exclusive turn, as we have realised by answering question number 2.
Is it possible to insure risks in your jurisdiction without a licence or authorisation? (i.e. on a non-admitted basis)?
No, it is not. The requirement of authorisation provided for in Article 126 of Law 18,046 imposes this requirement in an unavoidable manner. It is essential.
What penalty is available for those who operate in your jurisdiction without appropriate permission?
Infringement of Article 4 of DFL 251 (related to Article 126 of Law 18,046 on Special Corporations) is contemplated in Article 46 of DFL 251, and is a minor prison in its minimum degree (custodial sentence ranging from 61 to 545 days). This sanction extends to representatives (executives and directors) of companies that contravene the law.
In addition to the above, the CMF may impose administrative disqualification sanctions and fines, in addition to compensation for damages in accordance with the law.
How rigorous is the supervisory and enforcement environment?
Rigorous. There are considerable sanctions and fines applied by the CMF in recent years, for example in terms of prohibition of transactions between related parties, execution of activities outside the line of business authorised by law, as well as violation of rules on over-indebtedness.
How is the solvency of insurers (and reinsurers where relevant) supervised?
Article 7 of DFL 251 contemplates a minimum capital requirement of 90,000 Unidades de Fomento (USD 3,750,000 approx) which must be subscribed and paid in full at the time the company or insurance company is incorporated.
The above must be taken into account the limits of indebtedness and restrictions on investment matters. As for the former, article 15 of DFL 251 contemplates a maximum limit of total indebtedness in relation to the patrimony of the company, which in the case of General (and special general) Insurance Companies may not exceed 5 times its patrimony, and in the case of Life Insurance Companies may not exceed 15 times.
With regard to the latter, there are rules on restrictions on the investment of reserves and assets (a detail in Articles 21 to 26 of DFL 251).
In addition, as regards the solvency of insurance companies, Articles 65 to 87 of DFL 251 provide for a special procedure for the adjustment of capital deficits, investment deficits and overindebtedness, in addition to a special procedure for reorganisation and liquidation.
What are the minimum capital requirements?
See previous answer.
Is there a policyholder protection scheme in your jurisdiction?
With the modification that Law 20,667 introduces to the regulation of insurance contracts, replacing Articles 512 to 600 of the Code of Commerce, the Chilean legislator establishes the distinction between insurance contracts on large risks and insurance contracts with consumers. Specifically, article 542 of the aforementioned code contemplates a regulatory imperative regime - which partly follows the criteria of European legislation, especially Spanish legislation - establishing a rigid system of protection in favour of consumers. This rule functions as a mechanism for controlling the minimum content -by inclusion- of insurance contracts, limiting the freedom of insurers to draw up general conditions.
To the rules of the Commerce Code are added the rules of Law 19,496 on the Protection of the Rights of Consumers, which are applied in silence of the aforementioned Code. The rules on control of content by exclusion (unfair terms) and rules on transparency of contracts stand out.
All of the above is reinforced by the pre-contractual information requirements that articles 514 and 529 of the Commercial Code and article 17B of Law 19,496 impose on insurers in the direct marketing of insurance, on the one hand, and, on the other, the information duties that article 57 of DFL 251 and DS 1055 impose on intermediaries.
Finally, it is important to highlight the supervisory function of the CMF in fulfilling its objective of protecting consumers and market conduct.
How are groups supervised if at all?
The supervision is in charge of the Commission for the Financial Market, entity that fulfils its function exercising the faculties conferred by articles 3 of DFL 251 and 5 of Law 21,000. As we have pointed out, in Chile we are in a period of transition from a supervisory system based on rules to a supervisory system based on risks. The foregoing in the case of insurers.
In the case of intermediaries and adjusters, the supervisory system follows similar criteria, today with an emphasis on market behaviour.
Do senior managers have to meet fit and proper requirements and/or be approved?
In matters of management and direction of insurance companies, the special rules of administration contemplated in Law 18,046 on Corporations (hereinafter LSA ) are applied. Thus, in the case of the Company's directors, the disability rules of articles 35 and 36 of the LSA apply, in addition to the special disability of article 44bis of DFL 251. Directors are subject to the fiduciary duties established by Law 18,046 and the responsibility derived from the non-compliance of these duties. In the case of directors and executives of insurance companies, Article 50 of DFL 251 provides for a special liability regime - joint and several liability with own property - in the case of operations prohibited by law.
Both the second paragraph of Article 50 of DFL 251 and Article 50 of Law 18,046 unify the regime of liability of directors and managers of a Company.
Are there restrictions on outsourcing parts of the business?
The only restriction is given by the exclusivity of the turn. Insurers can market their contracts through intermediaries. In the same way, technological platforms can be contracted and others in support of the development of their business, without delegating their main function.
How are sales of insurance supervised or controlled?
In addition to the judicial control exercised by the courts, in accordance with Article 3(e) of DFL 251, and for the specific case of insurance with consumers, which involves the use of general conditions, the texts of such conditions can only be integrated into an insurance policy and marketed from the sixth day of their incorporation into a special deposit at the expense of the CMF . The approval of these texts by the supervisory authority is not necessary, however, the CMF may subsequently prohibit the texts of general conditions contrary to the law.
Are consumer policies subject to restrictions? If so briefly describe the range of protections offered to consumer policyholders
The Chilean legislator has emphasised the protection of insurance consumers from law 20,555 of 2012 and with absolute clarity from law 20,667 that modified the regulation of the contract. In this context, both the Commercial Code and Law 19,496 on the Protection of Consumer Rights contain protection mechanisms. On the one hand, article 542 of the Commercial Code introduced a control mechanism for content by inclusion of the contract, which is complemented by article 16 of Law 19,496 on abusive clauses and contemplates a control mechanism for exclusion. In addition, the pre-contractual information requirements of articles 514 and 529, number 1 of the Commercial Code, and article 17B of Law 19,496 must be considered. In addition to the foregoing are the rules on transparency of the aforementioned law 19,496 and the rules on market conduct dictated by the CMF.
Are the courts adept at handling complex commercial claims?
There is discussion on this matter. At great risk there is a kind of obligatory arbitration; in consumer matters the law gives the insured the option of action before an arbitrator or before the ordinary courts. In the latter case, it is discussed whether this ordinary (common) justice is the ordinary courts with civil or commercial jurisdiction or the so-called local police court (special judiciary).
Is alternative dispute resolution well established in your jurisdictions?
There are no alternative dispute resolution (ADR) systems for insurance covered by the law.
What are the primary challenges to new market entrants?
The main challenges that the insurance market will have to face can be summarised in two, fundamentally. The substantial change in supervision -given by the incorporation of a new institutionality and model-, on the one hand, and on the other, adjusting to the challenges presented by technological innovations, both in the dimesnión of cyber risks and Insurtech.
In the near term, the new integrated supervision model based on principles.
To what extent is the market being challenged by digital innovation?
In addition to the cyber-risk phenomenon, the digital transformation has had an impact on insurance, both in product creation and marketing. This phenomenon in Chile is still in a very preliminary stage. Although there are insurance companies that are taking care of incorporating the tools that digital transformation provides to their processes, greater transversality is required.
Over the next five years what type of business do you see taking a market lead?
In the next five years, the Chilean market should have sufficient penetration to enable the promotion of massive multi-risk insurance, cyber-risk both at the level of large companies and SMEs (small and medium-sized enterprises), as parametric insurance in catastrophic risks associated with large industries. On the other hand, the possible reform of the pension system could open an interesting business gap for Life Insurance Companies, allowing them to participate not only in the retributive stage of the pension (retirements), but also in the conformation of the funds to be pensioned, either in a main or complementary way.